Forensic accounting helped uncover college admissions scheme

In a case that has all the hallmarks of a forensic accounting investigation, federal authorities announced charges last week against dozens of prominent people, including CEOs, Hollywood actresses, athletic coaches and college exam administrators, in a nationwide conspiracy to cheat on college entrance exams to help admit students to elite universities as purported athletic recruits.

“I definitely think it played a huge role in the indictments because, in order to indict all of these people for mail fraud and basically sending illicit payments, what the investigators would have done is trace the funds from the illegal entities to the people and vice versa, for the bribes and payments,” said Dr. Jennifer Stevens, assistant professor of accountancy in the Ohio University School of Accountancy. “It played a huge role in the indictment, and the FBI has an entire forensic accounting team that does this. They’re not actually special agents. They work alongside special agents, but they have a division of forensic accountants that would have been working on a case like this.”

For instance, one of the main complainants cited in the Justice Department's criminal complaint is Laura Smith, an FBI special agent who got her start at the FBI in 2010 working as a forensic accountant conducting complex financial investigations.

Athletic coaches from Yale, Stanford, USC, Wake Forest and Georgetown, among others, were implicated in the college admissions case, along with parents and exam administrators. The ringleader was William “Rick” Singer, 58, who owned a college counseling and preparation business in Newport Beach, California, called the Edge College & Career Network LLC. He was also CEO of the Key Worldwide Foundation, a nonprofit he established as a purported charity that his clients used to send their payments, claiming the money as charitable donations.

“The people supposedly donating to charitable entities were probably deducting that from their taxes,” said Stevens. “The IRS will get involved, because you do have to pay tax, even if it is ill-gotten gains. Fraudsters usually don’t report that on their taxes because they’re stealing it. There’s usually a tax aspect to any type of fraud.”

Singer allegedly conspired with his clients to use bribery and other types of fraud to secure admission of students to colleges and universities. Authorities also charged 33 parents, including actresses Felicity Huffman and Lori Loughlin, as well as 13 coaches and associates of Singer’s businesses, including two SAT and ACT test administrators. Singer ultimately agreed to help the authorities with the investigation and gave them information on his clients.

“I don’t know who the original whistleblower would have been, but normally the greatest source of uncovering frauds is a whistleblower or tips, not always anonymous,” said Stevens. “Then the government would get people to collaborate with them, offering them deals so they end up getting a lesser penalty, and give information on other people.”

Stevens doesn’t think the investigators needed to trace the payments to the universities to uncover the fraud. “I think they would have gotten payments from the fake charitable entity, and Singer’s books, but I don’t think they would have gotten into the books and records of the universities,” she said. “But they would have been able to see payments going to people’s bank accounts, and that’s how they would have been able to start to trace them.”

Tags

Firms, state CPA societies and national accounting organizations are addressing the wave of international outrage and demonstrations sparked by the killing last week of George Floyd, an unarmed African American, by four Minneapolis police officers.